Oct 20. China hikes; mortgage mess continues

 The two major factors yesterday were China’s surprise rate increase of 25 bps and NY Fed, Pimco et al action to put back bad mortgages to BofA.
–China’s move spurred flight from risk assets.  Gold fell around $40, the dollar strengthened, stocks slid.  Long dated treasuries were lower early, but started to snap back, gaining steam as the NY Fed/ BofA mortgage news was released.  Recently the long end of the treasury market and stocks have tended to trade in the same direction, both reacting favorably to Fed representatives assuring the market of a new large batch of QE.  However, this time stocks remained under pressure as gains had probably already priced in the best case scenario, and weakness in financials underscored continued uncertainty.  BofA, having traded below $12 Friday, had been as high as 12.38 yesterday morning, but closed -4.5% at 11.80.  The stronger dollar is also a negative for big corporates that have benefited from an increase in exports associated with a cheap currency.  
–In a sign the mortgage mess just keeps on festering, the Cook County Sheriff (which encompasses Chicago), said he won’t enforce foreclosure actions because he can’t be sure of legality. No amount of QE helps that situation. 
–Beige Book this afternoon. 
Posted on October 19, 2010 at 6:31 pm by alexmanzara · Permalink
In: Eurodollar Options

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